Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. A portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Stated simply, diversification is a key aspect to maximizing long-term returns on investments. Investing in mutual funds automatically ensures some level of diversification, as opposed to selecting and holding a few individual securities, because a mutual fund typically holds a large number of securities. However, most mutual funds focus on very specific market segments (e.g., large cap stocks, small cap stocks, value stocks, growth stocks, real estate), and thus are inherently not diverse in certain aspects. There are some mutual funds that attempt to mimic the broad market, such as the Vanguard Total Stock Market Index fund, and thus inherently provide a high degree of diversification, at least with respect to stocks. However, most investors own a variety of different mutual funds and other investments which have holdings that are not inherently diverse.
It is a very difficult and time-consuming task to quantitatively determine how diverse a portfolio of investments is. However, this type of information is important to know, especially when building investment portfolios, or when buying and selling individual holdings, or when rebalancing a portfolio. Oftentimes, this type of information is communicated to users in formats that are difficult to read and comprehend. The present invention addresses this issue by providing 2-D and 3-D graphical visualizations of portfolio holdings which instantly communicate the diversification level of the holdings to the user in easy to digest formats.